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Is a wave of ethanol mergers coming?

This week's announcement that the local owners of Dakota Ethanol, a 48-million gallon ethanol plant in Wentworth, South Dakota, plan to merge with Countryside Renewable Energy, LLC, may not be the last.

Countryside, founded by Des Moines, Iowa, venture capitalist John Pappajohn, has been set up to facilitate the mergers of smaller farmer-owned plants into a larger business able to compete as bigger players move into ethanol production.

"For independents, this is a middle ground between standing alone and selling out," Brian Woldt, a farmer and Dakota Ethanol board member told Agriculture Online. "Consolidation is both an offensive and defensive move. If it's going to happen, you can shape what it will look like."

The size of Countryside hasn't yet been determined, which is one of the reasons why the announcement of a letter of intent to merge is a bit vague on the financial details. The 1,000 stockholders of Lake Area Corn Processors, the LLC that owns Dakota Ethanol, still have to vote on the merger, Woldt said.

In return for their investment in the plant, which began operating in September 2001, "what we're contemplating is some cash. But the vast majority will be ownership of Countryside," he said.

Exactly what those shares represent is still up in the air.

"If today we are 100% of one plant, in the near future it could be 20% ownership of five plants," Woldt said.

After Tuesday's announcement, Countryside's CEO, David Miles, was meeting with other prospective members of what he hopes will be a larger network of plants.

"We're seeing more interest than ever since we started this," Miles told Agriculture Online. "We're very hopeful that we'll have other announcements to follow the Dakota Ethanol announcement." He said he couldn't predict exactly how many plants will be in the new venture.

After Countryside was formed last year, Miles made presentations to about three dozen independent ethanol plants, he said. Then the spike in corn prices made the concept harder to promote.

"What slowed things down last fall when we got started was the abrupt change in the financial circumstances of ethanol plants," Miles said. Higher corn prices changed the balance sheets and outlook for ethanol plants dramatically. "Everybody had to rethink what they were worth and what were the other plants worth."

Still, plants like Dakota Ethanol remain profitable. And they're very well managed, Miles said, which is why Countryside has no plans to change those local management teams, or to add a huge layer of bureaucracy at the LLC's headquarters in Des Moines.

In fact, plants like Dakota Ethanol have made improvements and innovations that could strengthen a larger organization, he said. If each plant in the network shares its innovations with others in the network, Countryside will be stronger.

Miles said that the local plants' relationship with farmers and farmer owners won't change, either.

Where the larger organization has advantages will be in buying supplies such as enzymes. And it will be able to raise capital for modernizations and expansions at a lower cost.

And, "we bring an executive team that is comfortable operating a larger scale organization with multiple operations," he said.

Eventually, the goal is to have an initial public offering to take Countryside public, "which is something we would aspire to. You never know when that would happen," Miles said.

This week's announcement that the local owners of Dakota Ethanol, a 48-million gallon ethanol plant in Wentworth, South Dakota, plan to merge with Countryside Renewable Energy, LLC, may not be the last.